Ready for some numbers?
The WRS might achieve 7.2% average returns, but it must pay its promised pension benefits regardless. Thus, the published normal cost reflects only part of the cost of the pension plan. Additional cost comes from the guarantee that benefits will be paid, even if the plan's investments do not generate the predicted returns.
When the published normal cost of public pensions is risk-adjusted using standard financial economics to reflect the guaranteed nature of pension benefits, the normal cost of WRS increases from 11.6% of wages to 29.5% - more than two-and-a-half times greater.
Before the Walker reforms, most state employees in the WRS contributed only 0.2% of their wages toward the pension plan. Now that the reform bill has passed, most workers must contribute 5.8% of their wages, lowering the actual taxpayer cost to 23.7% (29.5 - 5.8) of wages. Put another way: to get the same guaranteed return associated with the WRS, a private-sector worker would need to invest 23.7% of his wages in a 401(k) each year.
The new 5.8% employee contribution has been widely reported as representing "half" of pension costs, but 5.8% is half of the improper normal cost estimate that is unadjusted for risk. In reality, most government employees in Wisconsin now pay about one-fifth of the cost of their retirement benefits, not half.
This is a step in the right direction, to be sure--but not a radical change.